General Electric Is Looking Towards Africa For Profits

Aug.12.14 | About: General Electric (GE)


The company is going to be investing in the continent some $2 billion over the next four years.

"Rome wasn't built in a day", so this investment is going to take quite some time.

The stock remains my favorite industrial stock in my dividend portfolio.

When I first started investing I used to call General Electric (NYSE:GE), "General Eclectic". This was because the company was so diversified and was at the top of everything it participated in that it used to be my favorite company. Then the financial crisis happened. But let's not dwell on that. GE definitely has its tentacles in almost everything and everywhere on this planet. There aren't however, many frontiers left for this conglomerate to expand into, except into Africa.

Africa is pretty much the last locale on this planet where the majority of the inhabitants of the continent are still living in poverty. Africa is the second-largest and second most populous continent on the planet (I can already see dollar signs circling around your brain). The continent is abundant with natural resources, but the population is the poorest and most underdeveloped. Many of these issues are due to corrupt governments and other socio-economical hardships.

However, GE is looking to make some progress on the continent, by pledging to invest $2 billion in the next four years. Every company must be looking at Africa right now was the next growth region, because it actually is the last region there is. CEO Jeff Immelt says that the company is committed to sustainable growth on the continent, and it will be very interesting to see that growth take place. The investment is going to be spent on building new infrastructure, training of local employees, and improving supply chains. The news was announced recently as there was a US/Africa Leadership Summit which started early last week.

Though companies have had projects in embroiled areas in the past, it would be interesting to see how Africa shapes up. The population is vastly illiterate and lots of time and training must take place in order to reap the rewards. This is a very small investment in the continent right now, and I would not anticipate any good returns on investment at this time. But I do believe this is a very good stepping stone to start with, and the investment should grow over time.

We've been hearing a lot of news lately about the US Congress wanting to close the Export-Import bank, and Mr. Immelt says that this would be bad news for trade with Africa. If you haven't heard about the Export-Import bank previously, it is the official export credit agency of the country which helps in financing the export of US goods and services to international markets. The bank doesn't compete with private sector lenders but provides financing products that fill gaps in trade financing. I won't bore you with the details about the potential closure of the bank, but you can read them here. Mr. Immelt says that keeping the bank open is paramount in showing Africa that the US stands by its word in wanting to export our goods there.


Africa is going to be a tough continent to reap rewards from due to the many road blocks that lie ahead for the company, but "Rome wasn't built in a day". I believe this is still a great company despite what the naysayers believe and will continue to buy the stock.

The company was recently upgraded to "outperform" from "market perform" at Bernstein. The price target was also raised from $29 to $33. Bernstein states five reasons for the upgrade which are identified in the link I provided.

The company continues to be inexpensive based on 2015 earnings estimates, which is the main reason why I continue to like the company (that high dividend yield also helps). Of the industrials that I have in the dividend portfolio, GE is definitely my industrial stock of choice.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: The author is long GE. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.